Accenture:
-- With compliance straining resources, more than 60 percent of
respondents say they will use temporary solutions to meet 2008
deadline
-- Top 100 European banks projected to spend more than EUR 3
billion to comply
Compliance with the Single Euro Payments Area (SEPA) project is
driving significant challenges in Europe, with payments industry
executives at many of the largest financial institutions reporting
much higher estimates of investment costs and fearing that business
and technology resources will be stretched as a result, according to a
recent Accenture (NYSE:ACN) survey.
SEPA, along with related initiatives, is a regulatory effort to
simplify and standardize the vast and fragmented payments market in
Europe and reduce cross-border hindrances to payments processing. SEPA
is affecting all aspects of electronic payments, including card
payments, credit transfers and direct debits, thus impacting banks,
processors, and their consumer and corporate customers.
More than half of payments industry executives surveyed (62
percent) said SEPA and other regulatory issues are the largest driver
of change in the European payments market, compared with 28 percent
citing market dynamics.
However, respondents' ranking of eight proposed viewpoints on the
regulation revealed that they see SEPA as more of an opportunity than
a compliance requirement. Three-quarters (74 percent) of respondents
agreed that SEPA is a "catalyst for change which will accelerate your
payments infrastructure transformation plans." More than half of
executives (57 percent) agreed that it is a "project that delivers
long overdue harmonisation, standards and improved efficiency." Only
16 percent of respondents agreed with the notion that SEPA represents
"unnecessary change with no business case," although 27 percent said
SEPA is a "high-risk project with unrealistic timeframes."
Researchers questioned 47 senior payments experts from major
banks, commercial/interbank processors and local industry in France,
Germany, Spain, Italy, Netherlands, Belgium, Norway, Sweden, Finland,
Denmark, United Kingdom, Latvia and Ireland. The survey sample
represents a significant portion of the European payments market,
including 12 of the 26 interbank processors, 26 of the largest 100
banks and five of the largest commercial processors. The study was
conducted between April and June.
Forty percent of bank respondents said they expect to invest
between EUR 11 million and EUR 50 million for ACH-type capabilities
over the next five years, and 34 percent said they expect to spend in
the same range for card-processing systems.
Extrapolating these results indicates a total spend on payments
capabilities over the next five years by Europe's 90 largest banks of
more than EUR 3 billion, according to Noel Gordon, managing director
of Accenture's Banking practice in Europe, Africa and Latin America -
making it possible that the previous highest estimate (from TowerGroup
(1)) of EUR 8 billion ($10 billion) across all of Europe will be
exceeded.
"The European Payments market is in revolution," said Gordon.
"After years with little change and relatively low regulatory mandated
investments, initiatives designed to clear the way for seamless
cross-border payments in Europe are heavy and expensive lifting for
everyone in the industry."
More than a third of respondents (39 percent) said they intend to
replace legacy payments processing platforms as a result of SEPA,
while more than half (55 percent) said they plan to update their
existing platforms. Only 6 percent said they are undecided or planning
other future steps.
Even with all this investment, only 37 percent of respondents said
they intend to be fully SEPA compliant by the 2008 interim deadline.
Between 2008 and 2010, countries' existing national payment systems
will co-exist with SEPA payments, before full migration to SEPA
payments in 2010. Banks which have not upgraded their systems by 2008
will need interim solutions to convert SEPA payments for processing by
existing systems until 2010. A quarter (27 percent) of respondents
said they intend handle their interim solutions internally and 19
percent said they intend to use third parties. Another 16 percent said
they will consider developing stand-alone SEPA-compliant products.
"I foresee a lot of premature grey hair among IT executives before
this is over," Gordon said. "While banks are not required to be fully
SEPA compliant by 2008, the fact that nearly two-thirds of respondents
say they will seek temporary interim solutions is worrying. They're
incurring extra expense, buying themselves just two years to get to
their final SEPA solution. For those using this approach, the ideal
answer is to select an interim solution that can be expanded upon to
support full compliance later on."
One of the reasons that two-thirds of respondents will not be SEPA
compliant by 2008 is that the initiative is stretching many banks'
business and technology resources to the limit. When asked to choose
among organizational capabilities that would be strained by SEPA
compliance, 74 percent of respondents selected "technical project
management" capabilities, 71 percent selected "business project
management," 69 percent selected "strategy development and planning,"
67 percent selected "systems delivery" and 62 percent selected "change
management across the organization."
"This data indicates that regulatory compliance threatens to
overload the industry by soaking up so many resources," Gordon said.
"Several executives indicated in interviews that they were worried
that SEPA might actually stifle product innovation - just the opposite
of what's intended."
Other highlights of the survey include:
-- Euro-zone banks are expecting to spend more than non-euro-zone
counterparts over the next five years on changes to their
payments infrastructures. The largest spending geographies
include UK and Scandinavia (outside the Euro-zone) with their
largest banks anticipated to spend approximately EUR 300
million and EUR 250 million, respectively, and France and
Italy (inside the Euro-zone) approximately EUR 500 million
each. On average, the banks in the survey predict spending EUR
23 million each on changes to processing of ACH-type payments
and EUR 22 million each on their card payments.
-- Respondents projected that the most challenging
business-product change will be implementation of SEPA Direct
Debit. More than two-thirds of respondents (71 percent) rated
this as the biggest development challenge to compliance for
ACH payments, in part because the new scheme is different than
existing national processes in several countries. Many banks
are also concerned that SEPA Direct Debits will also require
major changes by their corporate customers.
-- Banks were rated as best-positioned to benefit from SEPA in
their local market by 79 percent of respondents, followed by
61 percent for international card schemes (such as Visa and
MasterCard).
Survey respondents also projected that consolidation of payment
processing is an inevitable consequence of SEPA as national payments
infrastructures give way to European ones. Respondents predicted:
-- On average only seven of the 15 ACHs, and only seven of the 11
domestic interbank card processors, in Europe will survive
beyond 2010.
-- On average only four national debit schemes out of the current
11 will exist independently by 2010.
-- Their domestic debit card schemes were unlikely to exist as
independent entities by 2010.
-- Consolidation may make market entry difficult for new industry
players.
"Many of the executives we surveyed saw Visa and MasterCard as big
winners, particularly their debit card schemes," Gordon said. "Their
card processing operations were seen as likely to grow across Europe.
But they'd need to expand their offerings - from their present limited
roles of authorization, clearing and settlement -- to compete with
existing U.S. and European card-processing companies."
(1) TowerGroup Press Release 23 May 2005
Survey Methodology
The research was conducted for Accenture by PSE Consulting between
April and June 2006. Researchers interviewed 47 senior executives of
major banks, processors, interbank organisations and payments industry
specialists from 13 European countries. Interviews were based on a
structured questionnaire seeking both quantitative and qualitative
responses. The aggregate European spend estimate combines data from
this survey with that published by PSE in 2006 from other surveys,
representing an additional 20 banks in Europe.
About Accenture
Accenture is a global management consulting, technology services
and outsourcing company. Committed to delivering innovation, Accenture
collaborates with its clients to help them become high-performance
businesses and governments. With deep industry and business process
expertise, broad global resources and a proven track record, Accenture
can mobilize the right people, skills and technologies to help clients
improve their performance. With more than 133,000 people in 48
countries, the company generated net revenues of US$15.55 billion for
the fiscal year ended Aug. 31, 2005. Its home page is
www.accenture.com.
